Bright Trading Retreat
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Transcript Bright Trading Retreat
Trading strategies that I use & the trading rules that
govern them
I) Market neutral trading in sectors and
market making in “children” stocks
Currently my most productive strategy
I have a list of stocks regularly trade and am very familiar with
Follow the sector ETF, S & P 500, 10 year bonds
Trade these “children” securities in each sector with either
long or short bias dictated by market and sector trends
Hedge positions 50% or more (this changes with my opinion
of the direction of the market, and other securities within
that sector)
II) Day Trading
Works best in high volume high volatility like 2008
I go “Dime Hunting”
Watch “children” & stocks on the move and in the news
(Banks, Fannie Mae, Tyco, Enron, Internet Bubble)
Ratio pair day trading
Trade highest correlated pairs with most predictable ranges
on range bound days using 5 minute – 60 minute e-Signal
charts
Tape Reading
Watch for internalization, sub penny activity, and black pool
trades on the tape for “tells” for short term trades.
III) Ratio Based Pair Trading
Seek highly correlated pairs in e-Signal using day charts.
Swing trade positions.
Rob Friesen and PairTrader.com
Darren’s ratio
Accounts for 10 to 20% of my profits
Favorite trade set ups
Range bound pairs at range high or low with not trend and
regular price action
Trending pairs: Trade from a position of strength, add to
winners, exit losers. (also can be used when trend trading
futures, ETF’s, currencies, and other securities)
Range bound pair with brief trend: Wait for move to end then
enter the trade using recent high or low as a stop loss point.
IV) Special Edge Trading
Then and Now
Then
Fractions
ECN and Exchange arb. Early 2000’s
NYSE price improvement strategies early/mid 2000’s
Open Book trading (leaning on large bids and offers for
short term day trading)
Stocks lag futures (follow moves in e-minis buying and
selling “children” stocks)
Now
Tape based day trading
Look for these “tells”: heavy sub penny internalization action
and dark pool action selling or buying
OO’s & MOC’s (see Don)
Stat. arb. charting and programming availability
Back test programs
Automation
Proprietary edges
Trading Rules and Principles
that govern my trades and
trading strategies
1)The only constant thing in
trading is change.
Either adapt to it
Overcome it
Or get run over by it
“The dogs bark and the caravan moves on” Ancient
Proverb
2) Be the Casino
Approach trading like a casino approaches gambling
Keep the odds in your favor
Coin flip example
Play the odds
3) Look for the highest
probability of profit over the
highest profit potential
You win more baseball games with singles than home
runs.
4)Don’t be a one trick pony
Always stay on the lookout for new ideas and strategies
5. Don’t lose money
When a strategy begins to lose money I quickly
decrease my trading size.
The strategy is now dormant.
When a strategy is dormant don’t worry about how
much you are making. The goal is to make it profitable
again at which point increase your size.
6) Increase your trading size when
making money.
When your strategy is consistent start to increase your
position size and focus more time finding ways to
expand the working strategy.
7) Focus on what you are good at
Howard Gardner’s multiple intelligences.
Would you ask Einstein to compose a symphony or
Mozart to teach the theory of relativity.
8) When in doubt get out!
Doubt most likely means things are not going as
planned or things have changed.
Doubt will cloud your decision making
You can always get back in when things line up in your
favor.
9)My Trend Trading Rule
When trading the trend play with your offense not
your defense
Add to winning positions and cut losers
Don’t pick tops
Admit mistakes quickly and often
Don’t be stubborn
Being wrong is part of a winning strategy
Have you reached your wrong quota this month?
11) Always plan for the worse case
scenario.
This applies to trading and managing your trading
capital.
12)Don’t step in front of a speeding
train.
Wait until the train stops and turns around before you
climb on board.
13) Keep it simple
The Harvard MBA and the master programmer that
had the unfortunate job of trading.
14)Separate your emotions from
your trading